UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
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(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended June 30, 2000
Or
[ ] Transition report pursuant to Section 13 of 15(d) of the Securities Exchange
Act of 1934 For the transition period from ____ to ____
Commission file number: 333-38177
MADE2MANAGE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1665080
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
9002 Purdue Road, Indianapolis, IN 46268
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 532-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days.
Yes X No
---- ----
As of July 31, 2000, there were 4,745,704 shares of Common Stock, no par value,
outstanding.
<PAGE>
MADE2MANAGE SYSTEMS, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Page
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
As of June 30, 2000 and December 31, 1999...................... 3
Condensed Consolidated Statements of Operations
For the three and six months ended June 30, 2000 and 1999...... 4
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2000 and 1999................ 5
Notes to Condensed Consolidated Financial Statements........... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 8
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk..... 18
PART II OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K............................... 19
Signatures..................................................... 19
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
MADE2MANAGE SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
June 30, December 31,
2000 1999
--------- ---------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 12,267 $ 12,610
Marketable securities.......................................................... -- 1,800
Trade accounts receivable, net ................................................ 8,471 7,376
Prepaid expenses and other..................................................... 978 784
Income taxes refundable........................................................ 86 849
Deferred income taxes.......................................................... 1,609 737
--------- ---------
Total current assets........................................................ 23,411 24,156
Property and equipment, net........................................................ 4,698 4,795
Intangibles, net................................................................... 2,240 2,586
Deferred income taxes.............................................................. 87 87
--------- ---------
Total assets................................................................ $ 30,436 $ 31,624
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 1,075 $ 1,331
Accrued liabilities............................................................ 1,843 2,017
Deferred revenue............................................................... 9,022 8,986
--------- ---------
Total current liabilities................................................... 11,940 12,334
Deferred revenue................................................................... 281 419
--------- ---------
Total liabilities........................................................... 12,221 12,753
--------- ---------
Shareholders' equity:
Preferred stock, no par value; 2,000,000 shares authorized, no shares
issued and outstanding in 2000 and 1999..................................... -- --
Common stock, no par value; 10,000,000 shares authorized, 4,745,704 and
4,652,168 issued and outstanding in 2000 and 1999, respectively............. 22,413 21,889
Accumulated deficit............................................................ (4,198) (3,018)
---------- ---------
Total shareholders' equity.................................................. 18,215 18,871
--------- ---------
Total liabilities and shareholders' equity.................................. $ 30,436 $ 31,624
========= =========
<FN>
See accompanying notes.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
MADE2MANAGE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30 June 30
-------------------- --------------------
2000 1999 2000 1999
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Software.................................................. $ 3,261 $ 4,132 $ 6,112 $ 8,563
Services.................................................. 4,151 4,212 8,418 8,380
Hardware.................................................. 289 271 467 543
--------- --------- --------- ---------
Total revenues.......................................... 7,701 8,615 14,997 17,486
--------- --------- --------- ---------
Costs of revenues:
Software.................................................. 343 422 681 807
Amortization of purchased technology...................... 99 98 197 196
Services.................................................. 2,167 2,237 4,197 4,480
Hardware.................................................. 228 181 350 372
--------- --------- --------- ---------
Total costs of revenues................................. 2,837 2,938 5,425 5,855
--------- --------- --------- ---------
Gross profit............................................ 4,864 5,677 9,572 11,631
--------- --------- --------- ---------
Operating expenses:
Sales and marketing....................................... 3,262 2,950 6,165 5,846
Product development....................................... 1,737 1,631 3,437 3,125
General and administrative................................ 1,093 999 2,153 2,075
Amortization of acquired intangibles...................... 75 75 150 150
--------- --------- --------- ---------
Total operating expenses................................ 6,167 5,655 11,905 11,196
--------- --------- --------- ---------
Operating income (loss)....................................... (1,303) 22 (2,333) 435
Other income, net............................................. 145 148 297 288
--------- --------- --------- ---------
Income (loss) before income taxes............................. (1,158) 170 (2,036) 723
Income tax provision (benefit)................................ (562) 62 (856) 267
--------- --------- --------- ---------
Net income (loss)............................................. $ (596) $ 108 $ (1,180) $ 456
========= ========= ========= =========
Per share amounts:
Basic:
Net income (loss)....................................... $ (0.13) $ 0.02 $ (0.25) $ 0.10
========= ========= ========= =========
Average number of shares................................ 4,742 4,529 4,729 4,572
========= ========= ========= =========
Diluted:
Net income (loss)....................................... $ (0.13) $ 0.02 $ (0.25) $ 0.09
========= ========= ========= =========
Average number of shares................................ 4,742 5,059 4,729 5,063
========= ========= ========= =========
<FN>
See accompanying notes.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
MADE2MANAGE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
June 30,
2000 1999
<S> <C> <C>
Operating activities:
Net income (loss)............................................................... $ (1,180) $ 456
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization of property and equipment...................... 969 678
Amortization of purchased technology and other intangibles................... 348 346
Provision for doubtful accounts.............................................. 477 259
Changes in assets and liabilities:
Trade accounts receivable................................................. (1,572) (75)
Deferred and refundable income taxes...................................... (109) --
Prepaid expenses and other................................................ (196) 118
Accounts payable.......................................................... (256) (120)
Accrued liabilities....................................................... (174) (1,688)
Deferred revenue.......................................................... (102) 84
---------- ---------
Net cash provided by (used in) operating activities.......................... (1,795) 58
---------- ---------
Investing activities:
Purchases of property and equipment............................................. (872) (1,842)
Purchases of marketable securities.............................................. (3,000) (6,900)
Sales of marketable securities.................................................. 4,800 4,350
--------- ---------
Net cash provided by (used in) investing activities.......................... 928 (4,392)
--------- ---------
Financing activities:
Proceeds from issuance of common stock.......................................... 61 101
Proceeds from exercise of stock options......................................... 463 152
--------- ---------
Net cash provided by financing activities.................................... 524 253
--------- ---------
Change in cash and cash equivalents................................................. (343) (4,081)
Cash and cash equivalents, beginning of period...................................... 12,610 15,496
--------- ---------
Cash and cash equivalents, end of period............................................ $ 12,267 $ 11,415
========= =========
Supplemental disclosures - cash paid for:
Income taxes................................................................. $ -- $ 792
<FN>
See accompanying notes.
</FN>
</TABLE>
5
<PAGE>
MADE2MANAGE SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Description of Business
Made2Manage Systems, Inc. (the "Company") develops, markets and supports
business management systems for small and midsize manufacturing companies
located primarily in the United States. The Company is dependent upon its
primary product, Made2Manage for Windows, which is a fully integrated, Microsoft
Windows based business software system for manufacturing companies.
2. Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission regarding interim financial reporting.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements
and should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's December 31, 1999 Annual Report to
Shareholders. In management's opinion, this information has been prepared on the
same basis as the annual financial statements and includes all adjustments
(consisting only of normal and recurring adjustments) necessary for a fair
presentation of the information.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All intercompany balances have been eliminated.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates.
The operating results for the interim periods are not necessarily indicative of
the results of operations for the full year.
3. Cash Equivalents and Marketable Securities
The Company considers highly liquid investments with original maturities of
three months or less to be cash equivalents. Marketable securities consist of
debt instruments with maturities between three and twelve months and are
classified as available-for-sale. Cash equivalents and marketable securities are
valued at cost, which approximates market value.
4. Net Income (loss) per Share
Net income (loss) per share ("EPS") is determined in accordance with Statement
of Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings Per Share",
and is based upon the weighted average number of common and common equivalent
shares outstanding for the period. Diluted common equivalent shares consist of
convertible preferred stock (using the "if converted" method), stock options and
warrants (using the treasury stock method) as prescribed by SFAS No. 128. Common
equivalent shares are included in the diluted earnings per share calculation
when dilutive. Under the treasury stock method the assumed proceeds from the
exercise of stock options and warrants are applied solely to the repurchase of
common stock.
6
<PAGE>
<TABLE>
<CAPTION>
The reconciliation of basic EPS to diluted EPS for the three and six months
ended June 30, 2000 and 1999 follows (in thousands, except per share amounts):
Three Months Six Months
------------------------- --------------------------
Income Per Share Income Per Share
(Loss) Shares Amount (Loss) Shares Amount
<S> <C> <C> <C> <C> <C> <C>
2000:
Basic EPS....................................... $ (596) 4,742 $(0.13) $(1,180) 4,729 $ (0.25)
Adjustment for diluted EPS -- effect of stock
options..................................... -- -- -- --
------- ------- ------ -------
Diluted EPS..................................... $ (596) 4,742 $(0.13) $(1,180) 4,729 $ (0.25)
======= ======= ======= =======
1999:
Basic EPS....................................... $ 108 4,529 $ 0.02 $ 456 4,572 $ 0.10
Adjustment for diluted EPS - effect of stock
options..................................... -- 530 -- 491
------- ------- ------- -------
Diluted EPS..................................... $ 108 5,059 $ 0.02 $ 456 5,063 $ 0.09
======= ======= ======= =======
</TABLE>
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This report contains certain "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended. These statements reflect our expectations regarding our
strategic plans, future growth, results of operations, performance, business
prospects and opportunities. Words such as, "estimates," "believes,"
"anticipates," "plans" and similar expressions may be used to identify these
forward-looking statements, but are not the exclusive means of identifying these
statements. These statements reflect our current beliefs and are based on
information currently available to us. Accordingly, these statements are subject
to known and unknown risks, uncertainties and other factors that could cause our
actual growth, results, performance and business prospects and opportunities to
differ from those expressed in, or implied by, these statements. In light of the
uncertainties inherent in any forward-looking statement the inclusion of a
forward-looking statement herein should not be regarded as a representation by
us that our plans and objectives will be achieved. Actual results or events
could differ materially from those anticipated in any forward-looking statements
for the reasons discussed in this section, in the "Business Environment and Risk
Factors" section below, and elsewhere in this report, or for other reasons. We
are not obligated to update or revise these forward-looking statements to
reflect new events or circumstances or otherwise. Additional information
concerning factors that could cause actual results to differ materially from
those in the forward-looking statements is contained in the Company's SEC
reports, including the report on Form 10-K for the year ended December 31, 1999.
Overview
We develop, market, license and support Made2Manage, an open architecture,
standards-based, client/server and web based enterprise business system software
solution for small and midsize manufacturers engaged in engineer-to-order,
make-to-order, assemble-to-order, make-to-stock and mixed styles of production.
We have developed manufacturing software applications for this market since our
inception in 1986. .
During 1998 we acquired Bridgeware, Inc., a company that offers advance planning
and scheduling software, for a combination of cash and common stock totaling
$4.5 million. In connection with this acquisition, we recorded a $1.9 million
in-process technology charge. The remaining costs of the acquisition are
recorded as assets and are expected to be amortized over lives of five and seven
years.
In March 2000 we introduced m2mEport, our web site dedicated to the needs of
small and midsize manufacturers. m2mEport was subsequently split into three
distinct web sites, M2MEXPRESS, M2MEXPERT and VIPsite. Each site is designed to
meet specific e-commerce business needs of small and midsize manufacturers. The
M2MEXPRESS web site is designed to provide small and midsize manufacturing
companies access to Made2Manage via the Internet through a hosted Application
Service Provider option. The M2MEXPERT web site provides Made2Manage customers
with Internet resources, including virtual courses, cyber consulting and support
services 24 hours per day, seven days a week through the use of a knowledgebase
for troubleshooting. VIPsite is expected to be launched in the third quarter
2000 and will offer small and midsize manufacturing companies a range of
collaborative opportunities with both their customers and their suppliers.
Ultimately this should assist the manufacturer in sustaining customer loyalty
through improved service.
Made2Manage is sold internationally. In January 2000 we entered into a
distributor relationship with 4Front Software, http://www.4fti.com, to sell,
market and support our product in the United Kingdom and Europe.
Our revenues are derived from software licenses, services and hardware. Software
revenues are generated from licensing software to new customers, and from
current customers increasing the number of licensed users and licensing new
applications. We recognize revenue from software license fees and hardware upon
shipment to the customer following execution of a sales agreement. Service
revenues are generated from annual fees paid by customers to receive support
services and software upgrades and also from implementation, education and
consulting services. Support is typically purchased as part of the initial sales
agreement and is renewable annually. Support fees are recognized ratably over
the term of the agreement. Service revenues from implementation, education and
consulting services are generally included in the initial agreement. We
recognize revenue from these services as they are performed. Hardware revenues
are generated primarily from the sale of bar-coding and data collection
equipment used in connection with Made2Manage and constitute a relatively small
component of total revenues.
8
<PAGE>
Software revenues for a particular quarter depend substantially on orders
received and products shipped in that quarter. Furthermore, large orders may be
significant to operating income in the quarter in which the corresponding
revenue is recognized.
Results of Operations
The following table sets forth the percentage of total revenues and percent
increase or decrease from the prior dollar amount represented by certain items
included in our statements of operations for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Percent Six Months Ended Percent
June 30, Increase June 30, Increase
2000 1999 (Decrease) 2000 1999 (Decrease)
--------- -------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software............................. 42.3% 48.0% (21.1)% 40.8% 49.0% (28.6)%
Services............................. 53.9 48.9 (1.4) 56.1 47.9 0.5
Hardware............................. 3.8 3.1 6.6 3.1 3.1 (14.0)
-------- -------- -------- --------
Total revenues.................... 100.0 100.0 (10.6) 100.0 100.0 (14.2)
-------- -------- -------- --------
Costs of revenues:
Software............................. 4.4 4.9 (18.7) 4.6 4.6 (15.6)
Amortization of purchased technology. 1.3 1.1 1.0 1.3 1.1 0.5
Services............................. 28.1 26.0 (3.1) 28.0 25.6 (6.3)
Hardware............................. 3.0 2.1 26.0 2.3 2.2 (5.9)
-------- -------- -------- --------
Total costs of revenues........... 36.8 34.1 (3.4) 36.2 33.5 (7.3)
-------- -------- -------- --------
Gross profit...................... 63.2 65.9 (14.3) 63.8 66.5 (17.7)
-------- -------- -------- --------
Operating expenses:
Sales and marketing.................. 42.3 34.2 10.6 41.1 33.4 5.5
Product development.................. 22.6 18.9 6.5 22.9 17.9 10.0
General and administrative........... 14.2 11.6 9.4 14.4 11.8 3.8
Amortization of acquired intangibles. 1.0 0.9 -- 1.0 0.9 --
-------- --------- ------ -------- --------
Total operating expenses.......... 80.1 65.6 9.1 79.4 64.0 6.3
-------- -------- -------- --------
Operating income (loss).................. (16.9) 0.3 NM (15.6) 2.5 (636.3)
Other income, net ....................... 1.9 1.7 (2.0) 2.0 1.6 3.1
-------- -------- -------- --------
Income (loss) before income taxes........ (15.0) 2.0 (781.2) (13.6) 4.1 (381.6)
Income tax provision (benefit) .......... (7.3) 0.7 NM (5.7) 1.5 (420.6)
--------- -------- --------- --------
Net income (loss)........................ (7.7)% 1.3% (651.9)% (7.9)% 2.6% (358.8)%
========= ======== ========= ========
<FN>
NM - Not meaningful.
</FN>
</TABLE>
Comparison of Three and Six Months Ended June 30, 2000 and 1999
Revenues
Revenues are derived from software license fees, service and support fees and
hardware sales. For the three months ended June 30, 2000, total revenues
decreased by $914,000, or 10.6%, to $7.7 million from $8.6 million for the three
months ended June 30, 1999. For the six months ended June 30, 2000, total
revenues decreased by $2.5 million, or 14.2%, to $15.0 million from $17.5
million for the six months ended June 30, 1999. The decrease in total revenues
was primarily due to a lower volume of license transactions. We believe the
decrease in revenues is principally due to slowness in the recovery of the
enterprise software market place as manufacturers continue to delay expenditures
for business system solutions. We believe this delay is due in part to a
continuation of Year 2000 effects. We also believe manufacturers are
experiencing some confusion regarding e-commerce solutions, which has further
delayed buying decisions. See "Business Environment and Risk Factors - Year 2000
Market Dynamics" for a description of Year 2000 market dynamics and potential
revenue impact. We have not historically recognized significant annual revenues
from any single customer.
9
<PAGE>
Software Revenues. For the three months ended June 30, 2000, software revenues
decreased by $871,000, or 21.1%, to $3.3 million from $4.1 million for the three
months ended June 30, 1999. Software license revenues constituted 42.3% and
48.0% of total revenues for the three months ended June 30, 2000 and 1999,
respectively. For the six months ended June 30, 2000, software revenues
decreased by $2.5 million, or 28.6%, to $6.1 million from $8.6 million for the
six months ended June 30, 1999. Software license revenues constituted 40.8% and
49.0% of total revenues for the six months ended June 30, 2000 and 1999,
respectively. The decrease in software revenues was principally due to a lower
number of software license transactions.
Services Revenues. For the three months ended June 30, 2000, services revenues
were substantially flat compared to the three months ended June 30, 1999 at $4.2
million. These revenues constituted 53.9% and 48.9% of total revenues for the
three months ended June 30, 2000 and 1999, respectively. For the six months
ended June 30, 2000, services revenues were substantially flat compared to the
six months ended June 30, 1999 at $8.4 million. These revenues constituted 56.1%
and 47.9% of total revenues for the six months ended June 30, 2000 and 1999,
respectively. While support revenues increased due to support fees from an
expanded user base, education revenues decreased due to the lower volume of
license transactions. Consulting revenues stayed relatively flat as the lower
number of license transactions was offset by an increased installed base of
customers that require services.
Hardware Revenues. For the three months ended June 30, 2000, hardware revenues
increased by $18,000, or 6.6%, to $289,000 from $271,000 for the three months
ended June 30, 1999. These revenues constituted 3.8% and 3.1% of total revenues
for the three months ended June 30, 2000 and 1999, respectively. For the six
months ended June 30, 2000, hardware revenues decreased by $76,000, or 14.0%, to
$467,000 from $543,000 for the six months ended June 30, 1999. These revenues
constituted 3.1% of total revenues for both the three months ended June 30, 2000
and 1999. The decrease in hardware revenues for the six month period was
principally due to a lower volume of license transactions. The Company limits
the type of hardware equipment it sells to bar-coding and data collection
equipment necessary to utilize certain features of Made2Manage.
E-commerce Revenues. There were no revenues from M2MEXPRESS or VIPsite for the
first six months of 2000.
International Revenues. International revenues for the first six months ended
June 30, 2000 totaled $153,000 for software, hardware and support and
represented 1% of total revenues.
Costs of Revenues
Costs of Software Revenues. For the three months ended June 30, 2000 and 1999,
costs of software revenues totaled $343,000 and $422,000, respectively,
resulting in gross profit margins of 89.5% and 89.8% of software revenues,
respectively. For the six months ended June 30, 2000 and 1999, costs of software
revenues totaled $681,000 and $807,000, respectively, resulting in gross profit
margins of 88.9% and 90.6% of software revenues, respectively. The decrease in
the gross profit percentage was due to an increase in higher cost third party
products as a percentage of total software revenues.
Amortization of Purchased Technology. For the three months ended June 30, 2000
and 1999, the expense of $99,000 and $98,000, respectively, results from
amortizing the costs of purchased technology related to the acquisition of our
Bridgeware subsidiary in August 1998. This expense was $197,000 and $196,000,
respectively, for the six months ended June 30, 2000 and 1999.
10
<PAGE>
Costs of Services Revenues. For the three months ended June 30, 2000 and 1999,
costs of services revenues totaled $2.2 million in each period, resulting in
gross profits of 47.8% and 46.9%, respectively. For the six months ended June
30, 2000 and 1999, costs of services revenues totaled $4.2 million and $4.5
million, respectively, resulting in gross profits of 50.1% and 46.5%,
respectively. The decrease in costs was primarily due to operating efficiencies
gained, resulting in lower personnel costs.
Costs of Hardware Revenues. For the three months ended June 30, 2000 and 1999,
costs of hardware revenues totaled $228,000 and $181,000, respectively. The
gross profit from hardware was 21.1% and 33.2% of hardware revenues for the
three months ended June 30, 2000 and 1999, respectively. For the six months
ended June 30, 2000 and 1999, costs of hardware revenues were $350,000 and
$372,000, respectively. Gross profit from hardware was 25.1% and 31.5% for the
six months ended June 30, 2000 and 1999, respectively.
Operating Expenses
Sales and Marketing Expenses. For the three months ended June 30, 2000 and 1999,
sales and marketing expenses were $3.3 million and $3.0 million, respectively,
representing 42.3% and 34.2% of total revenues, respectively. For the six months
ended June 30, 2000 and 1999, sales and marketing expenses were $6.2 million and
$5.8 million, respectively, representing 41.1% and 33.4% of total revenues,
respectively. The increase in sales and marketing expenses is primarily due to
recruiting related costs for two new executives, e-commerce marketing efforts,
and increased activity with our European sales operation.
Product Development Expenses. For the three months ended June 30, 2000 and 1999,
product development expenses were $1.7 million and $1.6 million, respectively,
representing 22.6% and 18.9% of total revenues, respectively. For the six months
ended June 30, 2000 and 1999, product development expenses were $3.4 million and
$3.1 million, respectively, representing 22.9% and 17.9% of total revenues,
respectively. The increase in product development expenses is substantially the
result of our investment in e-commerce initiatives. We did not capitalize any
software development costs during these periods.
General and Administrative Expenses. For the three months ended June 30, 2000
and 1999, general and administrative expenses were $1.1 million and $1.0
million, respectively, representing 14.2% and 11.6% of total revenues,
respectively. For the six months ended June 30, 2000 and 1999, general and
administrative expenses were $2.2 million and $2.1 million, respectively,
representing 14.4% and 11.8% of total revenues, respectively.
Amortization of Acquired Intangibles. The expense of $75,000 for both the three
months ended June 30, 2000 and 1999 results from amortizing excess costs over
net assets acquired and assembled workforce related to the acquisition of our
Bridgeware subsidiary in August 1998. This expense was $150,000 for both the six
months ended June 30, 2000 and 1999.
Other Income, Net
For the three months ended June 30, 2000 and 1999, other income, net was
$145,000 and $148,000, respectively, representing 1.9% and 1.7% of total
revenues, respectively. For the six months ended June 30, 2000 and 1999, other
income, net was $297,000 and $288,000, respectively, representing 2.0% and 1.6%
of total revenues, respectively. The increase in the dollar amount of other
income, net for the six month period was due primarily to higher interest rates
on invested securities.
11
<PAGE>
Income Tax Provision (Benefit)
For the three months ended June 30, 2000 and 1999, the income tax provision
(benefit) effective rate was (48.5)% and 36.5%, respectively. For the six months
ended June 30, 2000 and 1999, the income tax provision (benefit) effective rate
was (42.0)% and 36.9%, respectively. The effective benefit rate for 2000 is
higher due to the cumulative effect of updated full year earnings estimates
combined with the tax effects of research and experimentation credits.
Liquidity and Capital Resources
We have funded our operations primarily through equity capital, debt and cash
generated from operations. As of June 30, 2000, we had $12.3 million of cash and
cash equivalents.
The net change in cash was a reduction of $343,000 for the first six months of
2000 and resulted primarily from an increase in accounts receivable due to sales
made near the end of June 2000 which have not yet been collected. Cash provided
by investing activities resulted from the sale of marketable securities with
maturities from three months to one year, partly offset by purchases of computer
software and hardware, telephone equipment and office furniture which aggregated
$872,000 for the first six months of 2000.
We have capital requirements for licensed software totaling $450,000, which is
to be paid by December 31, 2000.
At June 30, 2000, we had working capital of $11.5 million, including accounts
receivable, net, of $8.5 million. The average accounts receivable days
outstanding was 99 days as of June 30, 2000 and was 93 days at December 31,
1999. Deferred revenue is related to support agreements or contracted services
and was $9.3 million at June 30, 2000 or $102,000 lower than the balance at
December 31, 1999.
We have a revolving credit agreement with a commercial bank which expires on
April 30, 2001, borrowings under which bear interest at the prime rate (9.5% at
June 30, 2000). Loans under the revolving credit agreement are limited, in the
aggregate, to $2 million. We have not borrowed under the revolving line of
credit.
We believe that cash and cash equivalents, cash flow from operations and credit
commitments will be sufficient to meet our currently anticipated working capital
and capital expenditure requirements at least for the next twelve months.
Inflation
We believe that inflation has not had a material impact on our operations.
Accounting Pronouncements In December 1998, the Securities and Exchange
Commission Staff released Staff Accounting Bulletin No. 101, Revenue Recognition
in Financial Statements (SAB No. 101) which provides guidance on the
recognition, presentation, and disclosure of revenue in the financial
statements. Subsequent amendments require implementation in 2001. The company is
quantifying the effects of this pronouncement, if any.
Business Environment and Risk Factors
In addition to other information contained in this report, the following factors
could affect our actual results and could cause such results to differ
materially from those achieved in the past or expressed in our forward looking
statements.
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Fluctuations of Quarterly Operating Results; Seasonality
We have experienced in the past, and expect to experience in the future,
significant fluctuations in quarterly operating results. A substantial portion
of our software license revenue in each quarter is from licenses signed and
product shipped in that quarter, and such revenues historically have been
recorded largely in the third month of a quarter, with a concentration of
revenues mostly in the last week of that third month. Accordingly, our quarterly
results of operations are difficult to predict, and delays in closings of sales
near the end of a quarter or product delivery could cause quarterly revenues
and, to a greater degree, net income to fall substantially short of anticipated
levels. In addition, we have experienced a seasonal pattern in our operating
results, with the fourth quarter typically having the highest total revenues and
operating income and the first quarter having historically reported lower
revenues and operating income compared to the fourth quarter of the preceding
year.
Other factors, many of which are beyond our control, that may contribute to
fluctuations in quarterly operating results include the size of individual
orders, the timing of product introductions or enhancements by us and our
competitors, competition and pricing in the manufacturing software industry,
market acceptance of new products, reduction in demand for existing products,
the shortening of product life cycles as a result of new product introductions
by us or our competitors, product quality problems, personnel changes,
conditions or events in the manufacturing industry, and general economic
conditions.
The sales cycle for Made2Manage typically ranges from three to nine months.
However, license signing may be delayed for a number of reasons outside of our
control. Since software is generally shipped as orders are received, we have
historically operated without significant backlog.
Because our operating expenses are based on anticipated revenue levels and a
high percentage of our expenses are relatively fixed in the short term, small
variations in the timing of revenue recognition can cause a significant
fluctuation in operating results from quarter to quarter and may result in
unanticipated quarterly earnings shortfalls or losses. In addition, we may
increase operating expenses in anticipation of continued growth and to fund
expanded product development efforts. To the extent such expenses precede, or
are not subsequently followed by, increased revenues, our business, financial
condition and results of operations could be materially and adversely affected.
Year 2000 Market Dynamics
We believe the Year 2000 planning cycle reduced demand for enterprise business
systems in 1999. In addition, each customer's evaluation of its need to achieve
Year 2000 compliance with other internal systems potentially lengthened the
sales cycle. We believe that in 1999 certain customers and potential customers
were engaged in testing and correcting system Year 2000 problems, and such
customers may have chosen to defer system investments during 1999, negatively
impacting our revenues. Additionally, prior year sales may have been increased
due to customers' need to address Year 2000 issues. Such Year 2000 demand most
likely was reduced in 1999 due to the lead time required to implement new
systems, possibly negatively impacting our revenues. Our sales cycles may
lengthen in 2000 and future years due to lessened urgency of customers' system
investment decisions. Because Year 2000 related impacts on customer purchasing
decisions were unprecedented, we have a limited ability to determine the impact
of the Year 2000 market dynamics on our quarter-to-quarter revenues in 2000.
Product and Market Concentration
Our revenues are currently derived from licenses of Made2Manage, including
optional modules, licensing of Bridgeware's Advanced Planning and Scheduling
products and third-party software, and related support, services and hardware.
In the near term, Made2Manage and related services are expected to continue to
account for substantially all of our revenues. Accordingly, any event that
adversely affects the sale of Made2Manage, such as competition from other
products, significant quality problems, incompatibility with third party
hardware or software products, negative publicity or evaluation, reduced market
acceptance of, or obsolescence of the hardware platforms on, or software
environments in, which Made2Manage operates, could have a material adverse
effect on our business, financial condition and results of operations.
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Our business depends substantially upon the software expenditures of small and
midsize manufacturers, which in part depend upon the demand for such
manufacturers' products. A recession or other adverse event affecting
manufacturing industries in the United States could impact such demand, forcing
manufacturers in our target market to curtail or postpone capital expenditures
for business information systems. Any adverse change in the amount or timing of
software expenditures by our target customers could have a material adverse
effect on our business, financial condition and results of operations.
Dependence on Third Party Technologies
Made2Manage uses a variety of third party technologies, including operating
systems, tools and other applications developed and supported by Microsoft
Corporation ("Microsoft"). There can be no assurance that Microsoft will
continue to support the operating systems, tools and other applications utilized
by Made2Manage or that they will continue to be widely accepted in our target
market. Made2Manage relies heavily on Microsoft's Visual Studio and Microsoft
Sequel Server, and there can be no assurance that Microsoft will not discontinue
or otherwise fail to support Visual Studio or Sequel Server or any of its
components. In addition, we use a number of other programming tools and
applications, including ActiveX, OLE, ODBC, OLEDB, MSMQ, Site Server and
Internet Information Server.
We sublicense various third party products, including Microsoft Visual FoxPro,
Microsoft Sequel Server, Microsoft Project, products from Powerway, Best
Software, ADS Inc., Interact Commerce and FRx, and bar code hardware and
software. There can be no assurance that these third party vendors will continue
to support these technologies or that these technologies will retain their level
of acceptance among manufacturers in our target market. The occurrence of any of
these events could have a material adverse effect on our business, financial
condition and results of operations.
Product Development and Rapid Technological Change
Our growth and future financial performance depend in part upon our ability to
enhance existing applications and to develop and introduce new applications to
incorporate technological advances that satisfy customer requirements or
expectations. As a result of the complexities inherent in product development,
there can be no assurance that either improvements to Made2Manage or
applications that we develop in the future will be delivered on a timely basis
or ultimately accepted in the market. Any failure by us to anticipate or respond
adequately to technological development or end-user requirements, or any
significant delays in product development or introduction, could damage our
competitive position and have a material adverse effect on our business,
financial condition and results of operations.
Internet and Potential for Subscription Revenue Business Model
We believe the Internet is changing the way businesses operate and therefore the
software needs of customers. We believe customers will increasingly require
eBusiness applications and software solutions that will enable them to engage in
commerce or service over the Internet. If we are unable to respond to emerging
industry standards and technological changes we may not be able to deliver
products and services that meet our customer's changing needs. If we are not
successful in addressing these changing needs our products may become obsolete
and our financial results may be materially and adversely impacted.
Furthermore, advances in Internet and e-commerce applications may lead the
enterprise business system market to rapid acceptance of Application Service
Provider (ASP), a hosted method of delivering business system solutions. The ASP
method of delivery is a subscription revenue model and although subscriptions
could improve predictability of future revenue, it delays revenue recognition
and cash collections as compared to the current method. Therefore, if there is a
rapid change to the ASP business model our near term financial results and
financial position may be materially and adversely impacted.
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Dependence on Key Personnel
Our success depends to a significant extent upon a number of key employees,
including members of senior management. No employee is subject to an employment
contract. Our ability to implement business strategy is substantially dependent
on our ability to attract, on a timely basis, and retain skilled personnel,
especially sales, service, support and development personnel. Competition for
such personnel is intense, and we compete for such personnel with numerous
companies, including larger, more established companies with significantly
greater financial resources. There can be no assurance that we will be
successful in attracting and retaining skilled personnel. The loss of the
services of one or more of the key employees or the failure to attract and
retain qualified employees could have a material adverse effect on our business,
financial condition and results of operations.
Management of Growth; International Expansion
We have experienced rapid growth in our domestic business and operations. While
we have managed this growth to date, there can be no assurance that we will be
able to effectively do so in the future. Our ability to manage growth
successfully is contingent on a number of factors including our ability to
implement and improve operational, financial and management information systems
and to motivate and effectively manage employees.
While we have begun to distribute Made2Manage in international markets, we have
no significant experience in international markets and there can be no assurance
that such expansion can be successfully accomplished. Additionally, we rely
extensively on our European distributor, 4Front Software, to sell and service
the European market place. If 4Front Software is unable or unsuccessful in
promoting, selling and servicing Made2Manage our financial condition and results
of operations could be materially and adversely affected.
Risks Associated with Acquisitions
As part of our business strategy, we expect to review acquisition prospects that
would complement our existing product offerings, augment market coverage,
enhance technological capabilities, or that may otherwise offer growth
opportunities. Acquisitions could result in potentially dilutive issuances of
equity securities, the incurrence of debt and contingent liabilities or
amortization expenses related to goodwill and other intangible assets, any of
which could materially adversely affect operating results and/or the price of
our common stock. Acquisitions entail numerous risks, including difficulties in
the assimilation of acquired operations, technologies and products, diversion of
management's attention from other business concerns, risks of entering markets
in which we have no or limited prior experience and potential loss of key
employees of acquired organizations. No assurance can be given as to our ability
to successfully integrate any businesses, products, technologies or personnel
that might be acquired in the future, and the failure to do so could have a
material adverse effect on our business and financial condition or results of
operations.
Insufficient Customer Commitment
To obtain the benefits of Made2Manage, customers must commit resources to
implement and manage the product and to train their employees in the use of the
product. The failure of customers to commit sufficient resources to those tasks
or to carry them out effectively could result in customer dissatisfaction with
Made2Manage. If a significant number of customers became dissatisfied, our
reputation could be tarnished and our business, financial condition and results
of operations could be materially and adversely affected.
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Competition
The business management applications software market is intensely competitive,
rapidly changing and significantly affected by new product offerings and other
market activities. We face competition from a variety of software vendors,
including application software vendors, software tool vendors and relational
database management systems vendors. A number of companies offer Windows
compatible products that are directed at the market for business management
systems. The technologies we use to develop Made2Manage are generally available
and widely known and include technologies developed by Microsoft. There can be
no assurance that competitors will not develop products based on the same
technology upon which Made2Manage is based.
Our competitors include a large number of software and system vendors, many of
which are public companies. In addition, there are numerous international,
national and regional vendors that offer alternative systems. Several software
companies that have traditionally marketed business management systems to larger
manufacturers have announced initiatives to market business management systems
to midsize manufacturers. Compared to us, many of the existing competitors, as
well as a number of potential competitors, have significantly greater financial,
technical and marketing resources and a larger installed base of customers.
There can be no assurance that such competitors will not offer or develop
products that are superior to Made2Manage or that achieve greater market
acceptance. If such competition were to result in significant price declines or
loss of market share for Made2Manage, our business, financial condition and
results of operation would be adversely affected.
Relationships with Value Added Resellers
We distribute our software products through a direct sales force and a network
of value added resellers ("VARs"). A significant portion of licenses of
Made2Manage sold to new customers is sold by VARs. If some or all of the VARs
reduce their efforts to sell Made2Manage, promote competing products or
terminate their relationships with us, our business, financial condition and
results of operation would be materially and adversely affected. Furthermore,
VARs frequently develop strong relationships with their customers, so if VARs
criticize us or our products to their customers, our reputation could be
damaged, which could have a material adverse effect on our business, financial
condition or results of operations.
Additionally, we rely extensively on our European distributor, 4Front Software,
to sell and service the European market place. If 4Front Software is unable or
unsuccessful in promoting, selling and servicing Made2Manage our financial
condition and results of operations could be materially and adversely affected.
Product Liability and Lack of Insurance
We market, sell and support software products used by manufacturers to manage
their business operations and to store substantially all of their operational
data. Software programs as complex as those we offer may contain undetected
errors, despite testing, which are discovered only after the product has been
installed and used by customers. There can be no assurance that errors will not
be found in existing or future releases of our software or that any such errors
will not impair the market acceptance of these products. A customer could be
required to cease operations temporarily and some or all of its key operational
data could be lost or damaged if its information systems fail as the result of
human error, mechanical difficulties or quality problems in Made2Manage or third
party technologies utilized by Made2Manage. We have insurance covering product
liability or damages arising from negligent acts, errors, mistakes or omissions;
however there can be no assurance that this insurance will be adequate. A claim
against us, if successful and of a sufficient magnitude, could have a material
adverse effect on our business, financial condition and results of operations.
Dependence on Proprietary Rights; Risk of Infringement
We rely primarily on a combination of trade secret, copyright and trademark
laws, nondisclosure agreements and other contractual provisions and technical
measures to protect our proprietary rights. There can be no assurance that these
protections will be adequate or that competitors will not independently develop
products incorporating technology that is substantially equivalent or superior
to our technology. Furthermore, other than pending United States patent
applications for software included in Made2Manage related to the Material
Requirements Planning regeneration feature and a navigational interface for the
enterprise, the we have no patents or patent applications pending, and existing
copyright laws afford only limited protection. In the event that we are unable
to protect our proprietary rights, our business, financial condition and results
of operations could be materially and adversely affected.
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There can be no assurance that we will not be subject to claims that our
technology infringes on the intellectual property of third parties, that we
would prevail against any such claims or that a licensing agreement will be
available on reasonable terms in the event of an unfavorable ruling on any such
claim. Any such claim, with or without merit, would likely be time consuming and
expensive to defend and could have a material adverse effect on our business,
financial condition and results of operations.
Substantial Control by Single Shareholder
As of July 31, 2000, Hambrecht & Quist ("H&Q") and its affiliates, as a group,
beneficially owned approximately 20.7% of our outstanding common stock. As a
result, H&Q and its affiliates will be able to exercise significant influence
over all matters requiring shareholder approval, including the election of
directors and approval of significant corporate transactions. Concentration of
stock ownership could also have the effect of delaying or preventing a change in
control.
Effect of Antitakeover Provisions
Our Amended and Restated Articles of Incorporation (the "Articles") authorize
the Board of Directors to issue, without shareholder approval, up to two million
shares of preferred stock with such rights and preferences as the Board of
Directors may determine in its sole discretion. The Made2Manage Systems, Inc.
Stock Option Plan (the "Option Plan") provides that, unless the Board of
Directors or a committee of the our Board of Directors decides to the contrary,
all outstanding options vest and become immediately exercisable upon a merger or
similar transaction. In addition, certain provisions of Indiana law could have
the effect of making it more difficult for a third party to acquire, or
discouraging a third party from attempting to acquire, control. Further, certain
provisions of Indiana law impose various procedural and other requirements that
could make it more difficult for shareholders to effect certain corporate
actions. The foregoing provisions could discourage an attempt by a third party
to acquire a controlling interest without the approval of management even if
such third party were willing to purchase shares of common stock at a premium
over its then market price.
Possible Volatility of Stock Price
The trading price of our common stock could be subject to wide fluctuations in
response to quarterly variations in operating results, announcements of
technological innovations or new applications by us or our competitors, the
failure of earnings to meet the expectations of securities analysts and
investors, as well as other events or factors. In addition, the stock market has
from time to time experienced extreme price and volume fluctuations which have
particularly affected the market price of many high technology companies and
which often have been unrelated to the operating performance of these companies.
These broad market fluctuations may adversely affect the market price of the
common stock.
Shares Eligible for Future Sale
The sale of a substantial number of shares of our common stock in the public
market could adversely affect the market price of the common stock. As of July
31, 2000, we had 4,745,704 shares of common stock outstanding, of which 976,793
shares of common stock are "Restricted Shares," which are subject to volume and
other limitations of Rule 144 and Rule 701 restrictions under the Securities
Act. As of July 31, 2000, there were options outstanding to purchase 1,748,771
shares of common stock at a weighted average price of $7.19 share under the
Company's stock option plans, of which options to purchase 919,537 shares of
common stock were then vested and exercisable. We have reserved 230,903 shares
of common stock for future grant under the Option Plan. We have reserved 100,000
shares of common stock for issuance under the Made2Manage Systems, Inc. Employee
Stock Purchase Plan (the "Stock Purchase Plan"). As of July 31, 2000, 36,622
shares have been issued under the Stock Purchase Plan. We have filed
registration statements registering shares of common stock issued pursuant to
the Made2Manage Systems, Inc. Stock Option Plan and Stock Purchase Plan on
January 30, 1998. Accordingly, shares issued pursuant to these plans will be
saleable in the public market upon issuance, subject to certain restrictions.
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Absence of Dividends
We do not anticipate paying any cash dividends on our common stock in the
foreseeable future. We currently intend to retain earnings, if any, for the
development of our business.
Investment Risk
Despite the high credit ratings on our cash equivalents and investments, there
is no assurance such agencies will not default on their obligations which could
result in losses of principal and accrued interest.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We transact business in various foreign currencies, primarily in the United
Kingdom and Canada. We do not have any significant receivables or obligations
denominated in foreign currencies. We do not have any foreign currency swaps or
derivatives and we are not currently subject to material foreign currency
exchange risk.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Index to Exhibits
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the current period.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: August 11, 2000
MADE2MANAGE SYSTEMS, INC...
/s/David B. Wortman
------------------------------------
David B. Wortman
President, Chief Executive Officer
and Director
(Principal Executive Officer)
/s/Traci M. Dolan
------------------------------------
Traci M. Dolan
Vice President, Finance and Administration, Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
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<TABLE>
<CAPTION>
Index to Exhibits
Number Assigned in
Regulation S-K Exhibit Number
Item 601 Description of Exhibit
<S> <C> <C>
(2) 2.0 Stock Purchase Agreement, dated August 3, 1998, among Made2Manage
Systems, Inc. and the stockholders of Bridgeware, Inc.
(Incorporated by reference to June 30, 1998 Form 10-Q.)
(3) 3.1 Amended and Restated Articles of Incorporation of Made2Manage
Systems, Inc. (Incorporated by reference to Registration Statement
on Form S-1, Registration No. 333-38177.)
3.2 Amended and Restated Code of By-Laws of Made2Manage Systems, Inc.
(Incorporated by reference to Registration Statement on Form S-1,
Registration No. 333-38177.)
(4) 4.1 Specimen Stock Certificate for Common Stock (Incorporated by
reference to Registration Statement on Form S-1, Registration No.
333-38177.)
4.2 Other rights of securities holders - see Exhibits 3.1 and 3.2.
(10) 10.12 Form of Made2Manage Systems, Inc. Stock Option Agreement
(Incorporated by reference to Exhibit 10.16 to Registration
Statement on Form S-1, Registration No. 333-38177.)
10.18 Made2Manage Systems, Inc. Employee Stock Purchase Plan
(Incorporated by reference to Exhibit 10.22 to Registration
Statement on Form S-1, Registration No. 333-38177.)
10.27 Best Software, Inc. Linked Software Dealer Agreement by and
between Best Software, Inc. and Made2Manage Systems, Inc. dated
May 14, 1998 (Incorporated by reference to June 30, 1998 Form
10-Q.)
10.28 Business Loan Agreement by and between Bank One, Indiana, NA and
Made2Manage Systems, Inc. dated March 19, 1999 (Incorporated by
reference to March 31, 1999 Form 10-Q.)
10.29 Promissory Note by and between Bank One, Indiana, NA and
Made2Manage Systems Inc. dated March 19, 1999 (Incorporated by
reference to March 31, 1999 Form 10-Q.)
10.30 1999 Made2Manage Systems Inc. Employee Stock Option Plan
(Incorporated by reference to March 31, 1999 Form 10-Q.)
10.31 Amendment to the 1999 Made2Manage Systems, Inc. Employee Stock
Option Plan (Incorporated by reference to March 31, 2000 schedule
14-a, appendix 1.)
10.32 First Amendment to Business Loan Agreement by and between Bank
One, Indiana, NA and Made2Manage Systems, Inc. dated April 1, 2000
(Incorporated by reference to March 31, 2000 Form 10-Q.)
10.33 Promissory Note Modification Agreement by and between Bank One,
Indiana, NA and Made2Manage Systems, Inc. dated April 1, 2000
(Incorporated by reference to March 31, 2000 Form 10-Q.)
(21) 21.1 List of Subsidiaries (Incorporated by reference to December
31,1999 Form 10-K.)
(27) 27.1 Financial Data Schedule
</TABLE>
